Riverview State Bank v. Ernest

• Decision Date: 04 August 1952
• Docket Number: 4402.,No. 4401,4401
• Citation: 34 ALR 2d 892,198 F.2d 876
• Parties: RIVERVIEW STATE BANK v. ERNEST. ERNEST v. RIVERVIEW STATE BANK.
• Court: U.S. Court of Appeals — Tenth Circuit

34 ALR 2d 892, 198 F.2d 876 (1952)

RIVERVIEW STATE BANK v. ERNEST.

ERNEST v. RIVERVIEW STATE BANK.

Nos. 4401, 4402.

United States Court of Appeals Tenth Circuit.

July 10, 1952.

Rehearing Denied August 4, 1952.

T. M. Lillard, Topeka, Kan. (N. E. Snyder, Kansas City, Kan., and A. W. Hershberger, Wichita, Kan., on the brief), for appellant and cross-appellee.

Wesley E. Brown and Donald C. Martindell, Hutchinson, Kan. (Martindell, Carey, Brown & Brabets, Hutchinson, Kan., and Collins, Williams, Hughes & Martin, Wichita, Kan., on the brief), for appellee and cross-appellant.

Before PHILLIPS, Chief Judge, and BRATTON and PICKETT, Circuit Judges.

BRATTON, Circuit Judge.

These appeals present for determination rival contentions in a proceeding in bankruptcy in Kansas. H. A. Hershfield & Company, whose corporate name was subsequently changed to National Petroleum Reserves Corporation, hereinafter referred to as the bankrupt, executed and delivered to Riverview State Bank of Kansas City, Kansas, hereinafter referred to as the bank, a promissory note in the sum of $250,000, with interest thereon at the rate of four per cent per annum, payable in monthly installments of $2,083.33, plus accrued interest. Concurrently with the execution and delivery of the note and for the purpose of securing its payment, the bankrupt executed and delivered to the bank a first mortgage covering its interest in and to certain oil and gas leaseholds in Barton, Reno, Rice, and Stafford Counties, Kansas. The mortgage provided among other things that the bankrupt would execute and cause to be delivered to the proper parties all division and transfer orders which were necessary to assign to the bank all interest of the bankrupt in and to the proportionate part of the oil and gas produced from each of the mortgaged properties which the bankrupt owned or was entitled to; and it further provided that out of the proceeds of the oil run payments so assigned, the bank should apply during each calendar month the minimum aggregate sum of $2,083.33 on the principal and any unpaid interest on the note, should also apply such further amounts as were needed to pay any other obligations of the bankrupt to the bank, and should release to the bankrupt any excess remaining if no default then existed under the instrument. The mortgage was with reasonable promptness duly recorded in the office of register of deeds and also filed as a chattel mortgage in each of the four counties in which the property was situated. Approximately three months after the execution and delivery of the note and mortgage, the bankrupt executed and delivered to the bank an instrument designated "Assignment of Additional Collateral Security." The instrument was in substance a supplemental mortgage and it covered the interest of the bankrupt in a leasehold in Ellis County, Kansas. It recited that the bankrupt was indebted to the bank in the sum of $250,000, made specific reference to the original note and mortgage, and provided that the rights and interests of the bankrupt in such leasehold should be held by the bank under the same terms and conditions, and to the same extent, as if the leasehold had been included in the property described in the original mortgage. Thereafter, the bankrupt executed and delivered to the bank a like supplemental mortgage covering the interest of the bankrupt in a leasehold in Russell County, Kansas. The two supplemental mortgages were seasonably recorded in the office of the register of deeds of the respective counties in which the property was situated, but they were not filed as chattel mortgages or entered on the chattel mortgage records in either of such counties. Division orders or transfer orders were executed by the bankrupt in favor of the bank and filed with the oil pipe line companies at the time the mortgage was given on leases then in production, and thereafter like orders were promptly executed and filed as each lease became a producer. The division and transfer orders covered production of all producing wells on leases included in the original mortgage and also on the leases in Ellis and Russell Counties. For about six years after the execution of the note, original mortgage, and first division and transfer orders, the bank received and applied on the note of the bankrupt the oil run payments. Payments were then discontinued and since that time the funds have been impounded by the pipe line companies.

A petition in involuntary bankruptcy was filed against the bankrupt. On the same day, the bankrupt filed a petition under Chapter XI of the Bankruptcy Act, 11 U.S. C.A. § 501 et seq. No arrangement with creditors was effectuated; an order of adjudication was entered; and a trustee was duly selected and qualified. The referee determined that the mortgage recorded in the mortgage records and also filed and entered as a chattel mortgage in Barton, Reno, Rice, and Stafford Counties was valid as to the property, including the oil runs or the proceeds therefrom in those counties; and the referee further determined that the supplemental mortgages filed in Ellis and Russell Counties only as real estate mortgages and not filed as chattel mortgages were void as against the trustee in respect to all personal property described in such mortgages, including oil produced in such counties, from the date of the intervention of bankruptcy, and the bank was required to account accordingly to the trustee. On review, the court sustained in all respects the order of the referee. The bank appealed from the order of the court insofar as it sustained the determination of the referee that as against the trustee the bank had no lien upon the leaseholds in Ellis and Russell Counties and no claim to the oil runs or the proceeds therefrom in those counties; and the trustee appealed from the order of the court insofar as it upheld the determination of the referee that as against the trustee the mortgage created a valid lien upon the leaseholds, as well as the oil runs therefrom and the proceeds thereof, in Barton, Reno, Rice, and Stafford Counties.

On its appeal, the bank challenges the order of the court insofar as it was adverse to the bank, upon the ground that the recording of the supplemental mortgages in the office of the register of deeds in Ellis and Russell Counties fastened a valid lien upon the mineral leaseholds and the proceeds therefrom in those counties which should have been sustained. The solution of the question must have its source primarily in the proper interpretation of certain statutory provisions of Kansas and in certain decisions of the supreme court of the state. Section 55-203, General Statutes of Kansas 1949, provides that any oil and gas or mining lease that has been or may be recorded in the office of the register of deeds of the county may be discharged and cancelled of record by entry on the margin of the record thereof in the manner therein specified. Section 55-205 provides that when an oil, gas, or mineral lease is given on land within the state, the recording thereof in the office of the register of deeds of the county in which the land is situated shall impart notice to the public of the validity and continuance of the lease for the definite term therein expressed, but no longer; that if the lease contains the statement of any contingency upon the happening of which the terms may be extended, the owner of the lease may at any time before the expiration of the definite term file with the register of deeds an affidavit setting forth the facts showing that the required contingency has happened; that the affidavit shall be recorded in full; and that such record together with that of the lease shall be due notice to the public of the existence and continuing validity of the lease, until it shall be forfeited, cancelled, set aside, or surrendered according to law. Section 55-210 provides that all liens for labor and materials furnished to owners of leaseholds for oil and gas purposes shall be enforced in the same manner and notice of the same shall be given in the same manner as may be provided by law for enforcing liens of mechanics and others against real estate; that all other liens and mortgages on such leaseholds shall be enforced and foreclosed in the same manner as may be provided by law for enforcing liens and mortgages upon real estate; that after sale of the property there shall be no redemption; and that the sheriff shall make formal conveyance of all the property so sold to the purchaser in one deed of conveyance. Section 58-301 provides in pertinent part that every mortgage or conveyance intended to operate as a mortgage of personal property, which shall not be accompanied by an immediate delivery and be followed by an actual and continued change of possession of the things mortgaged, shall be absolutely void as against creditors of the mortgagor, and as against subsequent purchasers and mortgagees in good faith, unless the mortgage or a true copy thereof shall be forthwith deposited in the office of the register of deeds of the county in which the mortgaged property is located. Section 58-302 provides that upon receipt of such an instrument, the register of deeds shall endorse on the back thereof the time of its receipt and shall file it in his office, to be kept there for the inspection of all persons interested. Sections 58-303 and 58-304 relate to the filing of renewal affidavits. Section 58-305 pertains to the admissibility of evidence of a certified copy of such an instrument, including any affidavit of renewal. Section 58-306 provides that the register of deeds shall keep a book in which shall be entered a minute of all mortgages of personal property and affidavits filed, and shall keep an index of such book in the manner required of other records. Section 58-308 provides that when a mortgage of personal...